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What Is Severance Pay? Definition & What It Entails

By Motley Fool StaffUpdated Jul 3, 2025 at 11:56 PM

Key Points

  • Severance packages often include a cash lump sum and accrued PTO, calculated based on years employed.
  • Companies offer severance to avoid legal issues, although it's not mandatory unless stipulated by law or contract.
  • Severance pay is taxable, and negotiating payment terms can reduce tax liability impacts.

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